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Oklahoma lawmakers propose compromise on horizontal drilling tax

Oil and natural gas wells drilled in Oklahoma would be taxed at 2 percent for the first 36 months of production as part of a compromise tax bill Oklahoma House and Senate leaders released Monday. After the initial period, the tax rate would rise to 7 percent.

Oil and natural gas wells drilled in Oklahoma would be taxed at 2 percent for the first 36 months of production as part of a compromise tax bill Oklahoma House and Senate leaders released Monday. After the initial period, the tax rate would rise to 7 percent.

Executives from Devon Energy Corp., Continental Resources Inc. and Chesapeake Energy Corp. last month proposed a similar plan that would have set the tax rate at 2 percent for 48 months. They say the low rate is needed to help Oklahoma compete with other states that have better oil and natural gas resources.

Opponents including oilman George Kaiser have said the rate should be 7 percent. They say the lower rate will have a relatively small effect on energy companies and that the tax revenue should be used for education and other needs.

The state historically has assessed a 7 percent tax on most oil and natural gas production. In 1994, the Legislature created an incentive for horizontal drilling. The incentive initially lowered the tax rate to 1 percent for the first two years or until costs were recovered. In 2002, the incentive was extended to up to four years. The incentive program is set to expire next year in a move that would return the tax rate to 7 percent.

House Bill 2562 is expected to reach House and Senate committees on Tuesday.